MW HP Inc. was proactive about the impact of tariffs, and it may be paying off

By Therese Poletti

Ongoing plan leads to a jump in inventory in the fiscal first quarter

HP Inc. has been proactive in dealing with the potential impact from looming tariffs on goods manufactured in China, including an ongoing shift of its manufacturing operations and purchasing more inventory ahead of the expected tariffs.

The PC and printing giant said Thursday that as part of its ongoing work to shift more of its manufacturing away from China, it expects that by the end of fiscal 2025 - which ends in October - more than 90% of HP's products sold in North America will be built outside of China.

"We have been doing a lot of work to make our supply-chain network more resilient," HP $(HPQ)$ Chief Executive Enrique Lores told a group of analysts and reporters ahead of its earnings call Thursday with Wall Street.

Also read: Here is how HP's CEO says the company is thinking about possible tariffs.

HP said its inventory ended the fiscal first quarter at $8.4 billion, up from $7.7 billion in the previous quarter. HP Chief Financial Officer Karen Parkhill said that the increase would not affect the company's free cash flow, and that its inventory-buying was part of the company's "tariff mitigation strategy."

With already low profit margins, personal-computer companies do not have a lot of wiggle room to absorb many additional costs, said Dan Newman, principal analyst at Futurum Research. "There is a bit of a cat-and-mouse game as the various negotiations around the world take place" he said.

It is widely expected that PC makers will have to raise prices for new computers due to the Trump administration's tariffs.

In HP's fiscal first quarter, total revenue came in at $13.5 billion, up 2.5% from a year ago, and $100 million above analysts' estimates of $13.4 billion, according to FactSet consensus estimates.

The PC business reported revenue growth of 2% to $9.2 billion, while analysts were expecting revenue of $9.0 billion, with more strength in commercial PCs due to a big Microsoft $(MSFT)$ transition, and momentum in areas such as AI PCs, which can do artificial-intelligence tasks on the device itself. Commercial PC revenue grew 10%, but consumer revenue fell 7%.

"The acceleration of growth is driven by the Windows 11 transition," Lores said, adding that he believes that AI PC penetration will happen faster in the commercial arena, because of ways in which AI will help productivity.

Printing, on the other hand, saw a 2% revenue decline to $4.3 billion. Analysts had forecast print revenue of $4.25 billion.

HP also said it is increasing its ongoing program to cut costs, with the goal of saving an additional $300 million by the end of its fiscal 2025, which ends Oct. 31. Lores said that the additional spending is mostly going to result in a workforce rebalancing, with some incremental cuts.

When HP first announced its cost-cutting plan, called Future Ready, in November 2022, it expected workforce cuts of about 7,000 employees, and an estimated $1 billion in restructuring charges. As of HP's most recent annual report filed in December, it had a total of about 58,000 employees in 59 countries.

The additional cost-cutting moves in the Future Ready program will increase its restructuring and other charges by about $150 million to approximately $1.2 billion by the end of fiscal 2025, HP said.

In the first quarter, HP reported net income of $565 million, down from $622 million in the year-ago period and earnings per share of 59 cents, down from 62 cents in the year-ago period.

-Therese Poletti

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February 27, 2025 16:49 ET (21:49 GMT)

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